Rio Tinto and its 51% owned Canadian subsidiary Turquoise Hill Resources have kissed, made up and agreed to Rio’s new $C43 a share mop-up offer.
In a statement on Thursday afternoon Rio revealed the higher price had proven the winner – the offer was lifted from $C34 to $C40 a share earlier this week and then to $C43 per share overnight Wednesday, or more than 30% more than originally planned.
The total value of the offer has risen from the original $US2.4 billion (plus around $US400 million in standby financing) to $US3.1 billion and $US650 million, to $US3.3 million and the temporary funding, for a total cost of close to $US4 billion.
All up Rio Tinto had to offer an extra $US900 million to get the deal done, and with extra temporary funding, the total new cost is well over $US1.3 billion.
The deal, when complete will give Rio 66% of the huge Oyu Tolgoi copper and gold mining project in Mongolia, with the country’s government controlling the remainder.
When the deal is done Rio will not only operate the mine but have direct ownership, unlike the previous arrangement of indirect control.
Rio said in the statement the final agreement “has the unanimous approval of the independent Special Committee of Turquoise Hill’s Board of Directors, and values the Turquoise Hill minority share capital at approximately US$3.3 billion.”
“The Transaction is to be implemented by way of a plan of arrangement under the Business Corporations Act (Yukon) and both companies intend to expeditiously finalise an arrangement agreement (the “Arrangement Agreement”). An announcement will be made with details of the Arrangement Agreement once executed.
The deal will need the approval of 66.67% of votes cast by shareholders of Turquoise Hill (including Rio Tinto) and the approval of a simple majority of the votes cast by minority shareholders of Turquoise Hill.
A special meeting of shareholders of Turquoise Hill to approve the Transaction is expected as early as possible in the fourth quarter of 2022 and, if approved, the Transaction is expected to settle soon after.
Rio Tinto said it and Turquoise Hill had also agreed in principle to the following amendments to the financing Heads of Agreement, to support Turquoise Hill in addressing near term liquidity pressures:
- The early advance facility agreed in May will be lifted to $US650 million from $US400 million, “provided that if there is an anticipated funding shortfall for March 2023 the parties will in good faith discuss increasing the early advance facility by up to an additional $US100 million.”
- As well the two have agreed to extending the outside date by which the initial equity of $US650 million must be raised and early advance facility repaid from December 31, 2022 to March 31, 2023 and potentially to May 31, 2023 in the event of regulatory delays to the Arrangement Agreement;
- “In the event the Transaction has not been approved when the December 2022 principal repayment obligation of $US362 million by Turquoise Hill under the project finance facility arises, Rio Tinto has committed to ensuring funds are available to Turquoise Hill. “
- “The funds for this payment would be made available on the same terms as the Early Advance and being repayable to Rio Tinto at the same time as the Initial Equity Offering; and providing to Turquoise Hill Rio Tinto’s commitment to participate pro rata in the Initial Equity Offering subject to certain pre-conditions.”
This is all a rather complicated way of Rio making sure Turquoise Hill has enough money to keep financing its share of the Mongolian mine’s current expansion plan until the takeover is complete.
Rio Tinto CEO Jakob Stausholm said in Thursday’s statement that “Rio Tinto is committed to moving Oyu Tolgoi forward in direct partnership with the Government of Mongolia to realise its full potential for all stakeholders.”
“This agreement represents another significant step following the recent commencement of the underground operations, and will simplify governance, improve efficiency and create greater certainty of funding for the long-term success of the Oyu Tolgoi project,” he said.
Investors clearly didn’t like the extra money Rio has had to pay to get this deal up and the shares fell 2% to $92.52, the lowest they have been since last November and a real sign of shareholder displeasure.
Sentiment wasn’t helped by iron ore prices dipping under $US100 a tonne in trading yesterday, but the extra cost of the Turquoise Hill deal has not gone down well.
